28 March 2015

The Middle Eastern chessboard became far denser this week with one more regional Shiite-Sunni conflict intervened from aboard. As Saudi Arabia bombed Shiite positions in Yemen's capital Sanaa, the US was helping the Shiite siege to Iraq's petroleum city Tikrit, bombing the Sunni therein. Compelled to report both events, the mainstream media was able to vent some difficult questions: are not the US and Saudi allies? Why were rebellions in Syria or Libya supported by NATO and not those in Bahrain and Yemen? And what of the European foreign policy? Missing in action?

The support NATO provided to the Sunni against the Shiite governments in Syria and Iraq has unleashed a watershed of events that is slowly igniting the whole region. Old rifts are revived, new are open, Sunni and Shiites seem now unable to cohabit peacefully. Under their feet lie the fields that provide more than one third of the petroleum consumed in the world. With Iran and Saudi Arabia on opposite shores, the Persian Gulf could be the stage for the most damaging of wars.

24 March 2015

The IEA's 2008 World Energy Outlook brewed a particular furore among the resource realist community. With petroleum prices on the run and all the ingredients of economic recession already in the pot, this report granted the world with a cornucopian vision of fossil fuels that was hard to square with reality. During the months that followed TheOilDrum thoroughly took on this report with multiple articles from various contributors.

I was particularly intrigued with the CO2 emissions projections in this report. In the standard scenario atmospheric CO2 concentration was projected to reach 1 000 parts per million (ppm) by the end of the century, a near tripling in 100 years. I set out to construct a CO2 emission scenario based on technical fossil fuel extraction projections, and failed to get even to 500 ppm. However, the most fascinating result of that exercise was the relative imminence of a global CO2 emissions peak. Coal represents the largest underground stock of energy and the uncertainty on its ultimate size is high. Notwithstanding, following on the same growth path, a CO2 emissions peak by 2025 was only in reach to the most optimistic Coal extraction scenario. Such is the power of exponential growth.

News of recent days remind again this reality. "Coal bust" is an expression employed to characterise a market that might not be merely conjunctural.

21 March 2015

Petroleum prices have endured days of great volatility this past week, with multi percentage point variations intra-day. At the end of the week the Brent index stood pretty much where it started: 55 $/b. Meanwhile the West Texas index (WTI) - the benchmark used to price petroleum extracted across the Atlantic - sank spectacularly to 43 $/b. This means the petroleum sold in the US is now over 20% cheaper than that sold in Europe. Such wide spread is unheard of, and adds another dimension to the rift opening between both continents.

In fact the present WTI levels are but a symptom of an industry out of control, that irrespective of price continues pumping petroleum to fulfil land leasing and other contractual obligations. "Race to the bottom" is an expression used in the US to describe this phenomenon, companies will keep extracting petroleum until they go bankrupt. Many of these companies have adjourned their 2014 balance declarations to the very end of the month, trying to delay as much as possible the day of reckoning.

But the ship is already sinking. The first sizeable American petroleum company went under this week, leaving behind more than 2 G$ in bonds, at best to be restructured, written down at worst. It is unlikely this to be the last company going bust.

14 March 2015

The Brent index is back on the red, declining almost 10% in the week that now ends. The pain is here to stay, in spite of visible declines in extracted volumes, this underpricing may well last into the Summer. However, in terms relevant
to us, petroleum prices have actually been rising: in the past two months Brent has climbed from 40 €/b to 53 €/b. Similar rises have taken place against many other commodities; coinciding with a period of economic recession these price movements signal well the epoch we live today.

To almost six years of political turmoil and indecision has compounded the destabilisation of many of the EU's neighbours: Libya, Tunisia, Egypt, Syria and of course Ukraine. The rift opening between the Euro and the Dollar is thus only natural. And this rift is more than monetary. European politicians have much to blame on themselves, for the careless way they discarded Kadaffi and alienated Libya, for precipitously recognising a non-elected Ukrainian government that at best represent half of the population. But the role the US played on all this is ever more evident. And it is ever clearer their objectives are largely antagonistic to our interests.

07 March 2015

The past two weeks were mostly quiet in the energy sector. The contraction of the petroleum industry goes on without much highlight from the press; the Brent index seems stuck at 60 $/b for the moment. Could this just be the calm before the storm? Or the entrance into a long period in the doldrums?

This was perhaps a good moment for an update on the "grand scheme of things", with the publication a week ago of the Loglet Analysis re-run. In a remarkable coincidence, D. Coyle had published an update to the Shock Model, less than 24 hours before. Whilst fundamentally different, the two methods yield similar results: an overall peak within this decade and the loss of some 40 Mb/d between now and 2050. The Loglet Analysis yields a slightly steeper decline, possibly for it is not able at this stage to account for heavy petroleum as well as the Shock model does.